| | |
Market Snapshot
briefing.com
| Dow | 33380.37 | +376.89 | (1.14%) | | Nasdaq | 11695.82 | +232.84 | (2.03%) | | SP 500 | 4046.28 | +64.93 | (1.63%) | | 10-yr Note | +30/32 | 3.96 |
|
| | NYSE | Adv 2382 | Dec 562 | Vol 890 mln | | Nasdaq | Adv 3133 | Dec 1348 | Vol 5.0 bln |
Industry Watch
| Strong: Real Estate, Communication Services, Information Technology, Consumer Discretionary, Financials |
| | Weak: -- |
Moving the Market
-- Falling market rates, 10-yr note yield dipping below 4.00% this morning
-- Strong mega cap stocks
-- Technical buying interest after the S&P 500 found support at its 200-day moving average (3,940) yesterday.
-- Buying into a short-term oversold market
|
Closing Summary
03-Mar-23 16:30 ET
Dow +387.40 at 33390.88, Nasdaq +226.02 at 11689.00, S&P +64.29 at 4045.64
[BRIEFING.COM] The stock market closed out the week with a decent rally. The main indices moved higher right out of the gate, which had the S&P 500 open above its 50-day moving average (3,987). The positive disposition held up throughout the session and the main indices closed near their best levels of the day. The Dow, Nasdaq, and S&P 500 rose 1.2%, 2.0%, and 1.6%, respectively.
Price action in the Treasury market was an integral support factor for equities today. The 10-yr note yield settled back below 4.00%, down 11 basis points to 3.96%. The 2-yr note yield fell five basis points to 4.86%. The U.S. Dollar Index also fell 0.5% to 104.50.
The drop in market rates fueled buying interest in growth stocks. The Russell 3000 Growth Index rose 1.9% versus a 1.4% gain in the Russell 3000 Value Index.
There may have been some technical buying interest driving today's gains after the S&P 500 found support at its 200-day moving average (3,940) yesterday.
Broad based buying left all 11 S&P 500 sectors in positive territory. The consumer staples sector (+0.1%) registered the slimmest gain, weighed down by an earnings-driven loss in Costco (COST 475.26, -10.43, +2.2%). On the flip side, gains in mega cap components propelled the information technology (+2.1%), consumer discretionary (+2.1%), and communication services (+2.1%) to the top of the leaderboard.
The Vanguard Mega Cap Growth ETF (MGK) rose 2.1% versus a 1.4% gain in the Invesco S&P 500. Tesla (TSLA 197.79, +6.89, +3.6%) was a standout after February sales data out of China suggested a 13% rise m/m to 74,402 vehicles, according to Bloomberg.
- Nasdaq Composite: +11.7% YTD
- Russell 2000: +9.5% YTD
- S&P Midcap 400: +9.0% YTD
- S&P 500: +5.4% YTD
- Dow Jones Industrial Average: +0.7% YTD
Reviewing today's economic data:
- February IHS Markit Services PMI - Final 50.6; Prior 50.5
- February ISM Services PMI 55.1% (Briefing.com consensus 54.5%); Prior 55.2%
- The key takeaway from the report is that activity remained steady in February despite expectations for a slower pace of growth. Prices continued growing, which gives the Fed another argument to continue its rate hike campaign.
Economic data on Monday is limited to the January Factory Orders (Briefing.com consensus -1.8%; prior 1.8%) at 10:00 a.m. ET.
Rally continues ahead of the close
03-Mar-23 15:35 ET
Dow +361.11 at 33364.59, Nasdaq +223.54 at 11686.52, S&P +62.08 at 4043.43
[BRIEFING.COM] The rally effort is showing no signs of slowing ahead of the close. The S&P 500 did run into some resistance right below the 4,050 mark, but remains just off its best level for the day.
The 10-yr note yield settled noticeably lower today, down 11 basis points to 3.96%. The 2-yr note yield fell five basis points to 4.86%.
Economic data on Monday is limited to the January Factory Orders (Briefing.com consensus -1.8%; prior 1.8%) at 10:00 a.m. ET.
Energy complex futures rise
03-Mar-23 15:10 ET
Dow +376.89 at 33380.37, Nasdaq +232.84 at 11695.82, S&P +64.93 at 4046.28
[BRIEFING.COM] The market continue to high fresh session highs.
Every S&P 500 sector trades in positive territory now that consumer staples (+0.1%) joined the remaining ten sectors.
Energy complex futures settled the session higher. WTI crude oil futures rose 2.2% to $79.79/bbl and natural gas futures rose 8.3% to $3.14/mmbtu.
The CBOE Volatility Index continues to fall, down 4.5% or 0.88 to 18.71.
Cooper higher on earnings, Hormel catches JPM downgrade
03-Mar-23 14:30 ET
Dow +317.73 at 33321.21, Nasdaq +216.34 at 11679.32, S&P +57.89 at 4039.24
[BRIEFING.COM] The S&P 500 (+1.45%) is firmly in second place to this point on Friday.
S&P 500 constituents Cooper (COO 352.76, +24.90, +7.59%), Align Tech (ALGN 335.62, +22.41, +7.15%), and Meta Platforms (META 185.64, +11.11, +6.37%) are among today's top performers. COO moves higher on earnings, while ALGN appears to be gaining on sympathy in the medtech space, and META caught a sell side upgrade from Edgewater Research to Buy from Neutral.
Meanwhile, Minnesota-based CPG firm Hormel Foods (HRL 40.62, -1.21, -2.89%) slides to the bottom of the standings after a JP Morgan downgrade to Underweight, prompted in part by yesterday's earnings miss.
Gold ticks higher as dollar, yields retreat to end the week
03-Mar-23 14:00 ET
Dow +284.00 at 33287.48, Nasdaq +194.99 at 11657.97, S&P +52.17 at 4033.52
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.70%) is atop the standings, near HoDs on gains of 195 points.
Gold futures settled $14.10 higher (+0.8%) to $1,854.60/oz, finishing up +2.1% this week, aided in part by a tidy retreat off yesterday's strength in both the dollar and yields.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $104.67.
Page One
Last Updated: 03-Mar-23 08:50 ET | Archive
Stocks taking their cue from bonds
At the moment, 0.28% is all that stands between the S&P 500 recording its fourth straight losing week. That isn't much cushion, yet the futures market suggests the S&P 500 will get a little more padding on its week-to-date gain when the opening bell rings.
Currently, the S&P 500 futures are up 17 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 48 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 101 points and are trading 0.3% above fair value.
Early sources of support include a drop in Treasury yields, gains in the mega-cap stocks, a better than expected Caixin Services PMI report out of China, and some relief action after the S&P 500 managed to find support yesterday at its 200-day moving average (3,940).
There isn't any news basis for the drop in Treasury yields. The 2-yr note yield is down seven basis points to 4.84% and the 10-yr note yield is down nine basis points to 3.98%. The improvement is being attributed to a sense that Treasuries have gotten oversold on a short-term basis and are due for a bounce.
That same view came into play yesterday for stocks. At its low on Thursday, the S&P 500 was down 6.4% from its high on February 2. Not surprisingly, with a key technical support level in jeopardy, market participants latched on to Atlanta Fed President Bostic's view that he is in favor of a 25 basis points rate hike at the March FOMC meeting as a reason to rally into the close.
It was an overreaction in our estimation knowing that Mr. Bostic is not an FOMC voter until 2024, and also knowing that he said the day before that he felt the Fed should get its policy target range to 5.00-5.25% and leave it there well into 2024, effectively ruling out a rate cut (in his mind) in 2023.
The market, though, spun Mr. Bostic's view in a dovish way, operating with an understanding that the fear of a more aggressive Fed had already made its way into market pricing. Notably, Fed Governor Waller (FOMC voter) said right about the time the market was closing yesterday that the policy target range will have to be raised even more this year if job numbers and CPI inflation data stay hot.
The February Employment Situation Report will be released next Friday (March 10) and the February CPI data will be out March 14. Mr. Waller, then, seemed to be laying down the gauntlet for the market, which, at the moment, doesn't appear to feel overly challenged by it.
That could possibly change today if the February ISM Services PMI (Briefing.com consensus 54.5%; prior 55.2%) shows an acceleration from last month in services activity and/or there is an added jump in its prices index.
This report will be out at 10:00 a.m. ET and we suspect stocks will be taking their response cue from what happens in the Treasury market.
That is what they are doing at this point anyway while also digesting mixed reactions to earnings reports and/or guidance from the likes of Dell (DELL), ZScaler (ZS), Hewlett-Packard Enterprises (HPE), C3.ai (AI), Marvell (MRVL), Broadcom (AVGO), and Costco (COST).
-- Patrick J. O'Hare, Briefing.com
Costco's growth rates dip lower on softening demand for big ticket items (COST)
Membership warehouse retailer Costco (COST) has navigated through this inflationary environment and accompanying slowdown in consumer spending better than most retailers, but its mixed Q2 earnings report shows that even it's not immune to these headwinds.
- The company not only missed top-line estimates in back-to-back quarters, but its net sales growth of 6.5% was its weakest showing since 3Q20. Although COST generally benefits from a more affluent customer base than other big box retailers like Target (TGT) or Walmart (WMT), it's still experiencing a pullback in demand for big-ticket items such as electronics, jewelry, toys, and home furnishings.
- Altogether, big-ticket item categories, which account for 58% of COST's total e-commerce sales, were down by 15% yr/yr in that channel. These same departments only represent 8% of sales in the warehouses, where food and sundries and other consumables make up the bulk of sales.
- That's good news for COST because consumers are still buying food in bulk in order to save money. This is evident by the 5% increase in traffic in Q2, which is up from last quarter's 2.2% increase, and the low double-digit growth in the food and sundries category.
- Average ticket size, though, was essentially flat, reflecting the sluggish demand for big ticket items. Overall, Q2 comps came in at +6.8%, continuing a downward trend in growth from +7.1% in Q1, +10.4% in 4Q22, and +10.7% in Q3.
COST shares are getting hit on this deceleration in growth, but there are some positives.
- For instance, membership renewal rates reached all-time highs of 92.6% in the U.S. and Canada and 90.5% on a worldwide basis. Additionally, memberships growth remained strong with 123.0 mln cardholders at quarter end, good for a 7% yr/yr increase.
- With inflation cooling off a bit, coming down to the 5-6% range according to CFO Richard Galanti, COST's gross margin is holding firm. Core merchandise margin was lower by just six bps (excluding gas inflation) with fresh foods being down the most as COST lowering prices where it can to drive traffic and improve its competitive standing.
The main takeaway is that COST is feeling the impact of slowing consumer spending, like other big box retailers, but its heavy reliance on the food and sundries categories, which accounts for over 50% of total sales, enables it to better withstand the headwinds.
Dell trades flat after rebounding earlier today as FY24 guidance initially sent shares lower (DELL)
Dell (DELL) shares are trading flat today after the PC maker topped Q4 (Jan) earnings and sales expectations yesterday after the close. DELL also upped its annual dividend by 12% to an annual yield of 3.7% and named a new CFO, replacing the current CFO, Tom Sweet, upon his retirement at the end of 2Q24 (Jul).
Even though shares are not moving considerably higher today, the fact that they are holding up relatively well despite DELL's bearish outlook is a big win. Although investors reacted warmly toward Q4 numbers, sending shares up by over 6% immediately following DELL's report, they turned cold after DELL's Q1 (Apr) and FY24 (Jan) guidance, outlined during the call. DELL expects FY24 EPS of $5.00-5.60, a 26-34% tumble yr/yr, and revs of $83.89-90.02 bln, a 12-18% decline. Its earnings outlook was especially discouraging given its recent decisions to cut costs, announcing a 5% workforce reduction last month.
- What is causing DELL's disappointing guidance? Exiting FY23, the company continued to see demand softness across most verticals outside financial services, transportation, construction, and real estate. Making matters worse, while PC and server demand remains weak, storage, which saw solid demand in Q4, started to experience an unfavorable customer behavior shift, with extending sales cycles and cautious spending amongst large customers.
- The challenging demand landscape started to magnify toward the second half of FY23, illustrated by 1H23 sales growth of 12% versus a 9% decline in sales during 2H23. Furthermore, although Q4 numbers were largely better than expected, cracks started to surface during the quarter.
- For example, in DELL's CSG segment, which comprises over half of its total sales, PC demand fell sharply in Q4, declining 23% yr/yr to $13.4 bln, one of its worst single-quarter declines, accelerating from the -17% in Q3 (Oct).
- Commercial and consumer sales both fell. However, commercial revs held up much better than the consumer side, sinking by 17% compared to the 40% dive in consumer.
- DELL's remarks and quarterly numbers resembled those from rival HP Inc (HPQ) earlier this week. HPQ noticed corporate budget tightening impacting enterprise demand during JanQ. Also, like DELL, HPQ continued to see demand softness in the PC market, with consumer demand faring much worse than commercial.
- We believe the similarities between the two companies' JanQ results are also an influential factor behind DELL's shares holding up relatively well today.
On a lighter note, management did reiterate its long-term financial targets, including annualized sales growth of +3-4% and earnings of over +6%. Co-COO Anthony Whitten also pointed out that unlike during prior cycles, customers have not stopped their digital investments, continuing to plan projects even as budgets tighten. This development is encouraging as it could lead to a rebound in spending and a return to sequential growth later in the year.
DELL's JanQ results, like HPQ's, illuminated a challenging demand environment. The company's cost-cutting initiatives will help wade through the choppy waters ahead. However, we are concerned about the deterioration in DELL's storage business, especially given the company's optimism on storage relative to server demand just last quarter.
Marvell under pressure on weak guidance as Data Center segment deals with inventory correction(MRVL)
Marvell (MRVL -7%) is under pressure today after the semiconductor company missed slightly on EPS but beat slightly on revenue for Q4 (Jan). Probably more troubling was the Q1 (Apr) guidance with EPS and revs both below analyst expectations with EPS guidance being well below. This was the second quarter in a row where Marvell guided sharply lower for EPS for the next quarter, which is a concern.
- The company is citing inventory corrections and resulting changes in product mix. These dynamics are impacting both revenue and gross margin. Revenue declined 8% sequentially with the majority of the reduction coming from storage products within its Data Center end market. The rest of its end markets held up relatively well. The silver lining is that Marvell expects these headwinds to subside later in FY24, as inventory levels normalize, and Marvell-specific growth drivers accelerate.
- Digging into the Data Center segment, which is Marvell's largest end market by far at 35% of JanQ sales, segment revenue fell 13% yr/yr and, even more troubling, 21% sequentially to $497.6 mln. What is interesting is that Marvell said on the call that Data Center was better-than-expected, so it looks like management was preparing for an even more difficult result.
- Marvell says that the deceleration in Data Center marks the beginning of efforts by its customers to adjust their inventory to respond to more challenging market conditions. Marvell expects this trend to continue and is projecting lower demand to impact multiple data center products. As a result, Marvell expects Q1 Data Center revenue to decline in the mid-teens sequentially.
- Enterprise Networking, Marvell's second largest end market (26%), saw revenue jump 39% yr/yr, driven primarily by higher content and growing share of its merchant products. However, revs fell 3% sequentially as Marvell started to decrease channel inventory of its run rate merchant products. Marvell expects additional reduction in channel and customer inventory of merchant products in Q1 will cause revs to decline high single-digits sequentially.
- Its Carrier Infrastructure segment also performed fairly well with revs up 14% yr/yr, driven by strong demand for its wireless products as 5G adoption continues to expand. Consumer segment revs fell 3%. Revenue from its consumer SSD controllers continues to grow, but Marvell saw declines in legacy printer ASICs and HDD controllers. Automotive/Industrial revenue jumped 25% yr/yr to $99.4 mln, although this is Marvell's smallest segment at 7%.
Overall, this was a rough quarter for Marvell, especially the Q1 guidance. Its Data Center segment sounds like it's going through a difficult inventory correction. The stock had been making a strong move since the start of 2023, along with many tech names. However, it looks like investors may have gotten a little ahead of itself with Marvell. It sounds like the situation will improve later this year when inventory levels stabilize, but the near term outlook is not great.
Broadcom receives a nice push after delivering consistent growth in Q1, leans in on AI trends (AVGO)
Broadcom (AVGO +4%) is edging higher today on solid earnings and sales upside in Q1 (Jan). The semiconductor manufacturer and software developer, whose customers include tech giants like Apple (AAPL) and Cisco (CSCO), also issued upbeat Q2 (Apr) revenue guidance. All of AVGO's sales figures in the quarter were generally in line with its prior forecasts, underscoring steady demand across most end markets. During the call, management also leaned into AI, highlighting its technology in this field and how it will capitalize on the increasing prospects within this industry in FY23 (Oct).
- AVGO's Q1 numbers resembled those posted in Q4 (Oct), reflecting the firm's ability to produce consistent quarterly results. Adjusted EPS of $10.33 topped consensus by a similar margin as in Q4, while revenue growth remained in double-digit territory, climbing 15.7% yr/yr to $8.91 bln.
- CEO Hock Tan added some color surrounding Q1 results, noting that the company continued to be booked for FY23, with lead times for semiconductors at 50 weeks, unchanged for several quarters now, underpinning AVGO's lean inventory management. Mr. Tan has noted that he likes the 50-week lead time as it gives AVGO good visibility and pushes demand out by a year.
- Given how hot AI has been, it was not much of a surprise to hear AVGO discuss its role in AI extensively during the call, primarily within its networking division, something it did not do last quarter. Without diving too far into the weeds, AVGO projected certain AI-related tailwinds, such as generative AI driving growth at hyperscalers, would result in another quarter of 20% sales growth yr/yr in networking in Q2.
- A couple of laggards from Q1 are expected to extend their woes into Q2. AVGO's industrial resale business is projected to decline by a low single-digit percentage yr/yr in Q2 due to ongoing softness in China. Also, the company's wireless business is heading into a seasonal lull period, driving its forecast of a high single-digit percentage decline in Q2.
- However, AVGO's other end markets are propping up overall sales, leading to its upbeat Q2 sales forecast of $8.7 bln, a reasonable 7% improvement yr/yr.
There are still a few headwinds facing AVGO. Its massive $61 bln VMware (VMW) deal may continue to hang over the stock, possibly adding future volatility. Mr. Tan did not add additional details during the call even after the EU Commission issued an antitrust warning earlier this week, stating that he remains confident in the deal closing in FY23. Also, being AVGO's primary wireless customer, AAPL potentially taking back components within the iPhone could hurt AVGO down the road. However, Mr. Tan mentioned that nothing meaningful has changed in this department and sees the relationship continuing in a reasonably predictable manner.
Bottom line, most of AVGO's end markets are holding up nicely despite the uneasiness in the global economy, allowing the company to continue delivering consistently positive numbers. Longer term, AVGO looks poised to remain an industry leader, especially as semiconductor content continues to increase.
|
|
